It'd be easy to assume the Federal Housing Finance Agency has been consumed by the bitter debate over reducing a troubled borrower's mortgage loan principal.
But behind the noise, the FHFA has been quietly laying a foundation for the future of housing finance by forcing Fannie Mae and Freddie Mac to standardize their operations.
Controlled by the government for the past four years, the fierce rivals are already shadows of their former, formidable selves. But what the FHFA has planned will essentially make them mirror images of each other, separate companies on paper only.
"FHFA is doing such a major rework of Fannie and Freddie that it, in and of itself, is going to impact the debate over" how what to do with the government-sponsored enterprises, said Armando Falcon, who led the predecessor agency to the FHFA and is now CEO of Falcon Capital Advisors.
"Fannie and Freddie are going to look so different by the time this debate gets started again that policymakers will have to rethink all of the plans that have been put out so far."
The debate over what to do with Fannie and Freddie — and how large a role the government should play in housing — is going nowhere fast.
The government put both companies into conservatorship right after Labor Day in 2008 and put the FHFA in charge. The Treasury secretary at the time, Hank Paulson, called the conservatorship a "time-out" to stabilize the GSEs "while we decide their future role and structure."
Four years on and $190 billion later, we are no closer to a decision on what to do with Fannie and Freddie.
The FHFA has stepped into that vacuum.
"If you are the conservator of these two companies you get to the point of realizing you are going to be at this a while, meaning measured in years," Edward J. DeMarco, the agency's acting director, said in an interview. "What does it mean to be making ongoing investments in the people and the infrastructure of two companies that are on some kind of long-term wind-down, that aren't going to exist, at least in their current form?"
DeMarco's short answer to that question is "harmonization."
"You create greater efficiency and transparency in the marketplace by having one common set of standards," he said. "What we saw at Fannie and Freddie was an underinvestment in infrastructure, and we did not have confidence in the long-term strength in either securitization platform as something to build from."
So next month the FHFA will issue a white paper detailing its plans for building a new, single platform for securitizing mortgages. Everything from the pooling and servicing agreement to seller-servicer contracts will be the same at Fannie and Freddie.
Separate contracts with sellers and servicers, separate payment schedules and separate disclosures "ends up being very complicated for servicers and for FHFA as conservator," DeMarco said. "Diversity is nice, so you can see what works and what doesn't work, but it got to a point where we thought this really ought to be done the same way by both companies."
The guts of this move are outlined in the strategic plan the agency released last February.
While interested in reducing the GSEs' costs and improving their efficiency, the FHFA has a larger goal: to create a platform that the private sector can use after policymakers finally figure out what to do with Fannie and Freddie.
"Even as we build this, it will remain an asset of the conservatorships and ultimately the administration and Congress will make the final decision about whether this becomes a public utility, whether this in fact is an asset that gets sold into the marketplace or what," DeMarco said. "We are preserving that optionality for Congress, but we are trying to articulate it now as a potential industry utility."
The strategic plan comes with deadlines and a scorecard to grade how well Fannie and Freddie are doing. Seven months in, DeMarco is satisfied.
"I actually think we are making pretty good progress across the board," he said. At yearend the FHFA will officially tally the progress and set new goals for 2013.
Unifying terms and conditions like payment schedules may help narrow the spread between Fannie and Freddie debt. Currently Freddie securities pay in 45 days while Fannie's pay in 55 days. Under the new system, the payment schedules would be synchronized.
"There have always been pricing differences between Fannie's and Freddie's. …That's not the prime motivator here," he said. "The prime motivator is building an infrastructure that can serve the secondary mortgage market after the conservatorships are brought to an end."
DeMarco insists, most recently last week in a speech in Raleigh, N.C., that the FHFA is only talking about a single platform, not a single firm, at least not yet.
"What I was trying to say in North Carolina," he told me, "is our priority now is to get this platform done — not as some in the industry have said, that we ought to stop and merge these securities together."
The FHFA has no plans to merge the companies either, DeMarco said, because mergers are things companies do when they are building — not when they are winding down.
"When companies merge, you are doing that because you are trying to build efficiencies for the future," he said. "What does it mean here, where you have two companies in conservatorship where the administration is talking about wanting to get them wound down? Is that, in fact, a good use of taxpayer resources to invest in all of the complex activities that go on when you are merging two huge financial institutions?"
DeMarco is under no illusions about how long this single platform might take, calling it a "multiyear" effort. But he said he's in it for the long haul.
"I think that's already been proven, since I've passed by third anniversary," he said. "I respect the fact that I am an acting director. But I am committed to the work we are doing."